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Were Hedge Funds Right About Piling Into SL Green Realty Corp (SLG)?

Nina Todic

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in SL Green Realty Corp (NYSE:SLG)? The smart money sentiment can provide an answer to this question.

SL Green Realty Corp (NYSE:SLG) was in 22 hedge funds' portfolios at the end of December. SLG investors should be aware of an increase in activity from the world's largest hedge funds of late. There were 18 hedge funds in our database with SLG holdings at the end of the previous quarter. Our calculations also showed that SLG isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

David Harding

We're going to take a look at the key hedge fund action surrounding SL Green Realty Corp (NYSE:SLG).

What does the smart money think about SL Green Realty Corp (NYSE:SLG)?

Heading into the first quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SLG over the last 14 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SLG

The largest stake in SL Green Realty Corp (NYSE:SLG) was held by Renaissance Technologies, which reported holding $36.8 million worth of stock at the end of September. It was followed by Long Pond Capital with a $31.2 million position. Other investors bullish on the company included Winton Capital Management, Millennium Management, and Adage Capital Management.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Long Pond Capital, managed by John Khoury, initiated the biggest position in SL Green Realty Corp (NYSE:SLG). Long Pond Capital had $31.2 million invested in the company at the end of the quarter. Jeffrey Pierce's Snow Park Capital Partners also initiated a $7.9 million position during the quarter. The other funds with brand new SLG positions are Paul Tudor Jones's Tudor Investment Corp, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Matthew Hulsizer's PEAK6 Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as SL Green Realty Corp (NYSE:SLG) but similarly valued. We will take a look at Black Knight, Inc. (NYSE:BKI), Telecom Argentina S.A. (NYSE:TEO), HD Supply Holdings Inc (NASDAQ:HDS), and Cognex Corporation (NASDAQ:CGNX). This group of stocks' market values resemble SLG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BKI,36,543143,0 TEO,9,84728,0 HDS,31,1053143,-7 CGNX,13,261357,0 Average,22.25,485593,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $486 million. That figure was $150 million in SLG's case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 9 bullish hedge fund positions. SL Green Realty Corp (NYSE:SLG) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on SLG, though not to the same extent, as the stock returned 17.5% and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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